UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

or

 

      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 333-253073

 

CHARGE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

90-0471969

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

 125 Park Avenue, 25th Floor

New York, NY

 

 10017

(Address of principal executive offices)

 

(Zip Code)

 

(212) 921-2100

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Ticker

 symbol

 

Name of each exchange

on which registered

Common Stock, par value $.0001 per share

 

CRGE

 

Nasdaq Global Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

Smaller reporting company

Non-accelerated Filer

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of April 28, 2023, a total of 212,849,281 shares of common stock, par value $0.0001 per share, were issued and outstanding.

  

 

 

 

CHARGE ENTERPRISES, INC.

TABLE OF CONTENTS

 

 

Part I – Financial Information

 

Page

 

 

 

 

 

 

Item 1 

Financial Statements

 

5

 

 

 

 

 

 

Item 2 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

 

 

 

 

 

 

Item 3 

Quantitative and Qualitative Disclosures About Market Risk

 

42

 

 

 

 

 

 

Item 4 

Controls and Procedures

 

43

 

 

 

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

 

 

Item 1 

Legal Proceedings

 

44

 

 

 

 

 

 

Item 1A 

Risk Factors

 

44

 

 

 

 

 

 

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

 

 

 

 

 

Item 3 

Defaults Upon Senior Securities

 

44

 

 

 

 

 

 

Item 4 

Mine Safety Disclosures

 

44

 

 

 

 

 

 

Item 5 

Other Information

 

44

 

 

 

 

 

 

Item 6 

Exhibits

 

45

 

 

 

 

 

 

Signatures

 

47

 

 

 
2

Table of Contents

 

Special Note Regarding Forward--Looking Statements

 

You should read this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ending December 31, 2022 (our “2022 Form 10-K”) completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements.

 

Certain statements contained in this Form 10-Q, which reflect our current views with respect to future events and financial performance, and any other statements of a future or forward-looking nature, constitute “forward-looking statements” for the purpose of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors”. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

 

Any forward-looking statement in this Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Form 10-Q in conjunction with our Annual Report on Form 10-K filed on March 15, 2023, and the documents that we reference herein and therein and have filed as exhibits hereto and thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

This Quarterly Report on Form 10-Q also contains or may contain estimates, projections and other information concerning our industry, our business, and the markets for our products, including data regarding the estimated size of those markets and their projected growth rates. We obtained the industry and market data in this report from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions, and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies, and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements as predictions of future results. Our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

 
3

Table of Contents

 

ABBREVIATION GLOSSARY

 

Abbreviation

 

Definition

 

Abbreviation

 

Definition

ASU

 

Accounting Standards Update

 

MNO

 

Mobile Network Operators

CECL

 

Current Expected Credit Losses

 

NOL

 

Net Operating Loss

“Charge”, “Company” “we”, “our”, “us”

 

Charge Enterprises, Inc. and its subsidiaries on a consolidated basis

 

PCAOB

 

Public Company Accounting Oversight Board (United States)

EV

 

Electric Vehicle

 

RSUs

 

Restricted Stock Units

EVC

 

Electric Vehicle Charging

 

SEC

 

Securities and Exchange Commission

FASB

 

Financial Accountings Standards Board

 

SMS

 

Short Message Services

GAAP

 

Generally Accepted Accounting Principles in the United States of America

 

SOX

 

Sarbanes-Oxley Act of 2002

 

 

 

 

SS7/C7

 

System Signaling #7

 

 
4

Table of Contents

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Charge Enterprises, Inc.

Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

 December 31,

 

In thousands, except share and per share data

 

March 31,

2023

 

 

 2022

(As Adjusted)

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$36,493

 

 

$26,837

 

Restricted cash

 

 

886

 

 

 

886

 

Accounts receivable net of allowances of $210 in 2023 and $322 in 2022

 

 

75,204

 

 

 

72,405

 

Inventory

 

 

159

 

 

 

111

 

Deposits, prepaids and other current assets

 

 

2,258

 

 

 

3,187

 

Investments in marketable securities

 

 

6,548

 

 

 

6,757

 

Investments in non-marketable securities

 

 

236

 

 

 

236

 

Contract assets

 

 

11,009

 

 

 

6,090

 

Total current assets

 

 

132,793

 

 

 

116,509

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

697

 

 

 

732

 

Finance lease right-of-use asset

 

 

289

 

 

 

341

 

Operating lease right-of-use asset

 

 

3,590

 

 

 

4,028

 

Non-current assets

 

 

248

 

 

 

240

 

Goodwill

 

 

12,672

 

 

 

12,672

 

Intangible assets, net

 

 

32,899

 

 

 

33,932

 

Total Assets

 

 

183,188

 

 

 

168,454

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$80,571

 

 

$61,644

 

Accrued liabilities

 

 

5,674

 

 

 

11,121

 

Contract liabilities

 

 

18,043

 

 

 

13,741

 

Derivative liability

 

 

339

 

 

 

6,521

 

Finance lease liability

 

 

94

 

 

 

112

 

Operating lease liability

 

 

1,474

 

 

 

1,579

 

Current portion of long-term debt

 

 

25,146

 

 

 

29,180

 

Total current liabilities

 

 

131,341

 

 

 

123,898

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Finance lease liability, non-current

 

 

126

 

 

 

146

 

Operating lease liability, non-current

 

 

1,903

 

 

 

2,199

 

Net deferred tax liability

 

 

1,288

 

 

 

1,410

 

Total Liabilities

 

 

134,658

 

 

 

127,653

 

 

 

 

 

 

 

 

 

 

Mezzanine Equity

 

 

 

 

 

 

 

 

Series C Preferred Stock (6,226,370 shares issued and outstanding at March 31, 2023, and December 31, 2022)

 

 

16,572

 

 

 

16,572

 

Total Mezzanine Equity

 

 

16,572

 

 

 

16,572

 

 

 

 

 

 

 

 

 

 

Commitments, contingencies and concentration risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 20,000,000 shares authorized;     

 

 

 

 

 

 

 

 

Series D: 1,177,023 shares issued and outstanding at March 31, 2023, and December 31, 2022

 

 

-

 

 

 

-

 

Series E: 3,200,000 shares issued and outstanding at March 31, 2023

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value; 750,000,000 shares authorized 212,849,281 and 206,844,580 issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

21

 

 

 

20

 

Additional paid in capital

 

 

197,025

 

 

 

179,723

 

Accumulated other comprehensive income (loss)

 

 

-

 

 

 

-

 

Accumulated deficit

 

 

(165,088)

 

 

(155,514)

Total Stockholders’ Equity

 

 

31,958

 

 

 

24,229

 

Total Liabilities and Stockholders’ Equity

 

$183,188

 

 

$168,454

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
5

Table of Contents

 

Charge Enterprises, Inc.

Consolidated Statement of Operations

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended March 31,

 

In thousands, except per share data

 

2023

 

 

2022

(As Adjusted)

 

Revenues

 

$193,549

 

 

$162,978

 

Cost of sales

 

 

186,828

 

 

 

156,812

 

Gross profit

 

 

6,721

 

 

 

6,166

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

5,902

 

 

                7,424

 

General and administrative

 

 

3,345

 

 

 

2,742

 

Salaries and related benefits

 

 

5,418

 

 

 

4,193

 

Professional fees

 

 

466

 

 

 

1,064

 

Depreciation and amortization expense

 

 

1,210

 

 

 

209

 

Total operating expenses

 

 

16,341

 

 

 

15,632

 

 

 

 

 

 

 

 

 

 

(Loss) from operations

 

 

(9,620)

 

 

(9,466)

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

Income (loss) from investments, net

 

 

296

 

 

 

(170)

Change in fair value of derivative liabilities

 

 

1,376

 

 

 

-

 

Interest expense

 

 

(1,538)

 

 

(1,765)

Other income (expense), net

 

 

391

 

 

 

258

 

Foreign exchange adjustments

 

 

(7)

 

 

(256)

Total other income (expenses), net

 

 

518

 

 

 

(1,933)

 

 

 

 

 

 

 

 

 

(Loss) before income taxes

 

 

(9,102)

 

 

(11,399)

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(110)

 

 

1,373

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

$(9,212)

 

$(10,026)

Less: Deemed dividend

 

 

-

 

 

 

(3,856)

Less: Preferred dividends

 

 

(362)

 

 

(267)

Net (loss) available to common stockholders

 

$(9,574)

 

$(14,149)

 

 

 

 

 

 

 

 

 

Basic income (loss) per share available to common stockholders

 

$(0.05)

 

$(0.08)

Diluted income (loss) per share available to common stockholders

 

$(0.05)

 

$(0.08)

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, basic

 

 

207,060

 

 

 

188,409

 

Weighted average number of shares outstanding, diluted

 

 

207,060

 

 

 

188,409

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
6

Table of Contents

 

Charge Enterprises, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended March 31,

 

In thousands

 

2023

 

 

2022

(As Adjusted)

 

Net (loss)

 

$(9,212)

 

$(10,026)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

-

 

 

 

-

 

Other comprehensive income (loss), net of tax

 

 

-

 

 

 

-

 

Comprehensive (loss)

 

$(9,212)

 

$(10,026)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
7

Table of Contents

 

Charge Enterprises, Inc.

Consolidated Statements of Stockholders' Equity 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In thousands, except

 

Preferred Stock

 

 

Common Stock

 

 

Common Stock to be Issued

 

 

Additional

Paid-In

Capital (As

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

Deficit (As

 

 

 Total (As

 

share data

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Adjusted)

 

 

Income

 

 

Adjusted)

 

 

Adjusted)

 

Balance, December 31, 2021 (As Adjusted)

 

 

2,370,370

 

 

$-

 

 

 

184,266,934

 

 

$18

 

 

 

6,587,897

 

 

$1

 

 

$117,727

 

 

$(32)

 

$(103,366)

 

$14,348

 

Modified retrospective application of stock-based compensation accounting as of January 1, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,320)

 

 

-

 

 

 

3,115

 

 

 

(205)

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,744

 

 

 

-

 

 

 

-

 

 

 

10,744

 

Declaration of preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(267)

 

 

(267)

Series C Preferred Stock

 

 

3,856,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,050

 

 

 

-

 

 

 

-

 

 

 

12,050

 

Beneficial conversion feature arising from preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,651

 

 

 

-

 

 

 

-

 

 

 

2,651

 

Deemed dividend in connection with Series C Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,856)

 

 

(3,856)

Common stock issued for acquisition

 

 

-

 

 

 

-

 

 

 

5,201,863

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

17,530

 

 

 

-

 

 

 

-

 

 

 

17,531

 

Conversion of debt into common stock

 

 

-

 

 

 

-

 

 

 

319,950

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

80

 

 

 

-

 

 

 

-

 

 

 

80

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,141)

 

 

(13,141)

Balance, March 31, 2022 (As Adjusted)

 

 

6,226,370

 

 

$-

 

 

 

189,788,747

 

 

$19

 

 

 

6,587,897

 

 

$1

 

 

$157,462

 

 

$(32)

 

$(117,515)

 

$39,935

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
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Charge Enterprises, Inc.

Consolidated Statements of Stockholders' Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In thousands, except

 

 Preferred Stock

 

 

 Common Stock

 

 

 Common Stock to be Issued

 

 

Additional

Paid-In

 

 

 Accumulated Other Comprehensive

 

 

 Accumulated

 

 

 

share data

 

 Shares

 

 

Amount

 

 

 Shares

 

 

Amount

 

 

 Shares

 

 

Amount

 

 

Capital

 

 

 Income

 

 

 Deficit

 

 

 Total

 

Balance, December 31, 2022 (As Adjusted)

 

 

1,177,023

 

 

$-

 

 

 

206,844,580

 

 

$20

 

 

 

-

 

 

$-

 

 

$179,723

 

 

$-

 

 

$(155,514)

 

$24,229

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

(444)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,902

 

 

 

-

 

 

 

-

 

 

 

5,902

 

Declaration of preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(362)

 

 

(362)

Exercise of warrants

 

 

3,200,000

 

 

 

-

 

 

 

4,400,000

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

3,799

 

 

 

-

 

 

 

-

 

 

 

3,800

 

Derivative liability impact to exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,806

 

 

 

-

 

 

 

 

 

 

 

4,806

 

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

75,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43

 

 

 

-

 

 

 

-

 

 

 

43

 

Common stock issued for acquisition

 

 

-

 

 

 

-

 

 

 

1,530,145

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,752

 

 

 

-

 

 

 

-

 

 

 

2,752

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,212)

 

 

(9,212)

Balance, March 31, 2023

 

 

4,377,023

 

 

$-

 

 

 

212,849,281

 

 

$21

 

 

 

-

 

 

$-

 

 

$197,025

 

 

$-

 

 

$(165,088)

 

$31,958

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
9

Table of Contents

 

 

Charge Enterprises, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

(As Adjusted)

 

In thousands

 

 

 

 

 

 

Cash flows from Operating Activities:

 

 

 

 

 

 

Net loss

 

$(9,212)

 

$(10,026)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization

 

 

1,033

 

 

 

-

 

Depreciation

 

 

177

 

 

 

209

 

Stock-based compensation

 

 

5,902

 

 

 

7,424

 

Change in fair value of derivative liabilities

 

 

(1,376)

 

 

-

 

Amortization of debt discount

 

 

990

 

 

 

1,030

 

Loss on foreign currency exchange

 

 

7

 

 

 

256

 

Net loss (gain) from investments

 

 

(296)

 

 

170

 

Other expense, net

 

 

(288)

 

 

(188)

Change in deferred income taxes

 

 

(121)

 

 

(1,373)

Changes in working capital requirements:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,514)

 

 

4,207

 

Inventory

 

 

(48)

 

 

-

 

Deposits, prepaids and other current assets

 

 

156

 

 

 

(221)

Other assets / liabilities

 

 

141

 

 

 

(129)

Contract assets

 

 

(4,919)

 

 

(1,773)

Accounts payable

 

 

19,044

 

 

 

17,876

 

Other current liabilities

 

 

(2,062)

 

 

(521)

Contract liabilities

 

 

4,302

 

 

 

(2,225)

Net cash provided by operating activities

 

 

10,916

 

 

 

14,716

 

 

 

 

 

 

 

 

 

 

Cash flows from Investing Activities:

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(90)

 

 

(35)

Sale of intellectual property

 

 

-

 

 

 

128

 

Purchase of marketable securities

 

 

(6,356)

 

 

(42,614)

Sale of marketable securities

 

 

6,822

 

 

 

28,401

 

Acquisition of EV Depot

 

 

1

 

 

 

(1,231)

Cash acquired in acquisitions

 

 

-

 

 

 

104

 

Net cash provided by (used in) investing activities

 

 

377

 

 

 

(15,247)

 

 

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from sale of Series C preferred stock

 

 

-

 

 

 

10,845

 

Proceeds from issuance of Series E preferred stock

 

 

1,600

 

 

 

-

 

Proceeds from exercise of warrants

 

 

2,200

 

 

 

-

 

Proceeds from exercise of stock options

 

 

41

 

 

 

-

 

Draws from revolving line of credit

 

 

4,717

 

 

 

3,200

 

Payments on revolving line of credit

 

 

(9,741)

 

 

(5,098)

Payment on financing lease

 

 

(20)

 

 

(27)

Payment of dividends on preferred stock

 

 

(362)

 

 

(261)

Net cash (used in) provided by financing activities

 

 

(1,565)

 

 

8,659

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes

 

 

(72)

 

 

15

 

 

 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

9,656

 

 

 

8,143

 

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period

 

 

27,723

 

 

 

18,238

 

Cash, Cash Equivalents, and Restricted Cash, End of Period

 

$37,379

 

 

$26,381

 

 Cash paid for interest expense

 

 485

 

 

 732

 

 Cash paid for income taxes

 

 4

 

 

 -

 

 Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 Issuance of common stock for acquisition

 

 -

 

 

 17,530

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
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CHARGE ENTERPRISES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.   Nature of operations

 

Charge Enterprises, Inc. (the “Company”), (formerly known as “Transworld Holdings, Inc.”, “GoIP Global, Inc.” and “E Education Network, Inc.”) was incorporated in Nevada in 2003. The Company was subsequently redomiciled in Delaware.

 

The Company is an electrical, broadband and electric vehicle (“EV”) charging infrastructure company that provides clients with end-to-end project management services, from advising, designing, engineering, acquiring and installing equipment, to monitoring, servicing, and maintenance. The Company’s vision is to be a leader in enabling the next wave of transportation and connectivity. By building, designing, and operating seamless infrastructure for charging EVs and high-speed broadband, the Company aims to create a future where transportation is safe, reliable, clean, efficient, and connected.

 

The Company has two operating segments which also represent the Company’s reportable segments:

 

·

Infrastructure, which has a primary focus on EV charging (“EVC”), broadband, including cell tower, small cell, and in-building applications, and electrical contracting services.

·

Telecommunications, which provides connection of voice calls, Short Message Services (“SMS”), and data to global carriers.

 

Note 2.   Summary of significant accounting policies

 

Basis of Presentation

 

The interim unaudited consolidated financial statements included herein have been prepared by the Company in accordance with: (i) generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal and recurring nature. The Company’s results shown on an interim basis are not necessarily indicative of results for a full year.

 

This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, and filed with the SEC on March 15, 2023, as part of the Company’s Annual Report on Form 10-K (the “2022 Annual Report”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

 

There have been no material changes from Note 2, Summary of significant accounting policies, as described in the notes to the Company’s consolidated financial statements contained in the 2022 Annual Report, other than as noted below.

 

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and the Company has and intends to continue to take advantage of certain exemptions from various reporting requirements.

 

 
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Table of Contents

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements and related disclosures, presented in U.S. dollars, have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. The results and trends in these consolidated financial statements may not be representative for any future periods or the full year.

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The Company implemented ASU 2016-13 on January 1, 2023. The impact of adopting this new guidance was not material.

 

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 is designed to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. ASU 2021-08 was effective for the Company beginning January 1, 2023, under a prospective application and may impact the accounting for future business combinations.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for the Company as of January 1, 2024. Early adoption is permitted. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting as it no longer has convertible debt. The Company will continue to monitor relevant accounting pronouncements.

 

Reclassification 

 

Certain amounts included in the prior year financial statements and disclosures have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company’s previously reported financial statements.

 

Change in Accounting Principle 

 

Effective January 1, 2023, the Company changed its accounting principle for recognizing stock-based compensation expense from the graded vesting attribution method, where an award is divided into vesting increments or tranches, to the straight-line attribution method of accounting. The Company believes the straight-line attribution method more accurately reflects how awards are earned over its employees’ service periods. Also, it is the predominant method used in its industry, and therefore it better aligns the Company’s recognition of stock-based compensation expense with its peers.

 

 
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The retrospective application of the change in accounting principle had an effect on the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income (loss) and consolidated statements of stockholders’ equity. There was no net effect to the amounts reported for net cash provided by (used in) operating, investing or financing activities in the consolidated statements of cash flows for prior periods as a result of the change in accounting method. However, the net loss, change in deferred income taxes and stock-based compensation line items within net cash flows provided by operating activities each decreased as shown below to reflect the change in accounting method. 

 

The following tables present the comparative effect of the change in accounting principle and its effect on the Company’s previously reported financial statements. 

 

 

 

Three Months Ended

 

 

 

March 31,

2023

 

 

March 31,

2022

 

 

 

(amounts, in thousands, except per share data)

 

Stock-based compensation

 

 

 

 

 

 

Prior to revision

 

$5,542

 

 

$10,744

 

Revision

 

 

360

 

 

 

(3,320)

As revised

 

$5,902

 

 

$7,424

 

Loss from operations

 

 

 

 

 

 

 

 

Prior to revision

 

$(9,260)

 

$(12,786)

Revision

 

 

(360)

 

 

3,320

 

As revised

 

$(9,620)

 

$(9,466)

Income tax benefit (expense)

 

 

 

 

 

 

 

 

Prior to revision

 

$(110)

 

$1,578

 

Revision

 

 

-

 

 

 

(205)

As revised

 

$(110)

 

$1,373

 

Net income (loss)

 

 

 

 

 

 

 

 

Prior to revision

 

$(8,852)

 

$(13,141)

Revision

 

 

(360)

 

 

3,115

 

As revised

 

$(9,212)

 

$(10,026)

Basic income (loss) per share available to common stockholders

 

 

 

 

 

 

 

 

Prior to revision

 

$(0.05)

 

$(0.09)

Revision

 

 

-

 

 

 

0.01

 

As revised

 

$(0.05)

 

$(0.08)

Diluted income (loss) per share available to common stockholders

 

 

 

 

 

 

 

 

Prior to revision

 

$(0.05)

 

$(0.09)

Revision

 

 

-

 

 

 

0.01

 

As revised

 

$(0.05)

 

$(0.08)

 

 
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Table of Contents

 

The opening balances of accumulated deficit and additional paid in capital as of December 31, 2021, have been adjusted by $8.0 million and $9.1 million, respectively to reflect the cumulative effect of the change.

 

 

 

As of

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(amounts, in thousands)

 

Net deferred tax (liability) asset

 

 

 

 

 

 

Prior to revision

 

$(1,262)

 

$(1,389)

Revision

 

 

(26)

 

 

(21)

As revised

 

$(1,288)

 

$(1,410)

Additional paid in capital

 

 

 

 

 

 

 

 

Prior to revision

 

 

214,758

 

 

 

197,816

 

Revision

 

 

(17,733)

 

 

(18,093)

As revised

 

$197,025

 

 

$179,723

 

Accumulated deficit

 

 

 

 

 

 

 

 

Prior to revision

 

$(182,795)

 

$(173,586)

Revision

 

 

17,707

 

 

 

18,072

 

As revised

 

$(165,088)

 

$(155,514)

Total stockholders’ equity

 

 

 

 

 

 

 

 

Prior to revision

 

$31,984

 

 

$24,250

 

Revision

 

 

(26)

 

 

(21)

As revised

 

$31,958

 

 

$24,229

 

 

 
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Table of Contents

 

Note 3.   Fair value measurements

 

Recurring Fair Value Measurements

 

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis:

 

 

 

March 31, 2023

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Measured at Net Asset Value as a Practical Expedient

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities (Note 5)

 

$4,956

 

 

$-

 

 

$-

 

 

$1,592

 

 

$6,548

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (Note 9)

 

$-

 

 

$339

 

 

$-

 

 

$-

 

 

$339

 

 

The market value of the equity securities is determined using quoted prices in active markets. The market value of underlying investments in funds is determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by the fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by outstanding units. In accordance with appropriate accounting guidance, these investments have not been classified in the fair value hierarchy. This class includes investments in a closed end interval fund that invests in publicly traded equity securities of U.S. and foreign companies. There are no unfunded commitments related to this investment. Investment redemptions are limited to 25% of the fund’s outstanding shares but may be redeemed on a quarterly basis with 15 days’ notice.

 

The Company had a contingent consideration liability of $3.5 million as of December 31, 2022, related to the Company’s acquisition of EV Group Holdings LLC, and its settlement occurred in the first quarter of 2023. The contingency was based on the Company’s average share price for the month ending December 31, 2022. As a result of the settlement of this contingent consideration liability, the Company issued 1,530,145 additional shares of common stock to the sellers. The contingent consideration liability was reflected in accrued liabilities on the consolidated balance sheet, and the remeasurement was reflected in other income (expense), net on the consolidated statement of operations as of and for the period ended December 31, 2022.

 

Nonrecurring Fair Value Measurements

 

The Company also has investments in non-marketable securities, which are primarily equity securities in a non-public company that do not have readily determinable fair values. Such investments are initially recorded at cost and adjusted to fair value on a nonrecurring basis through earnings for observable price changes in orderly transactions for identical or similar transactions of the same company (Level 2 of U.S. GAAP fair value hierarchy). Historical adjustments have not been material. The carrying amount of these equity securities is $0.2 million as of March 31, 2023, and December 31, 2022, and is included in non-marketable securities on the consolidated balance sheet. There were no increases or decreases in the fair value of the non-marketable securities for the three months ended March 31, 2023, and 2022.

 

 
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Table of Contents

 

Note 4.   Revenue

 

Contract Balances 

 

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $0.3 million and $0.0 million as of March 31, 2023, and December 31, 2022, respectively.

 

(in thousands)

 

March 31,

2023

 

 

December 31,

2022

 

Receivables included in “Accounts receivable net of allowances”

 

$74,865

 

 

$72,405

 

Contract assets

 

 

11,009

 

 

 

6,090

 

Contract liabilities - current

 

 

18,043

 

 

 

13,741

 

 

Changes in Contract Balances 

 

The timing of revenue recognition, billings and cash collections results in accounts receivable, and customer advances and unearned revenue on the Company’s consolidated balance sheets. At times, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to the advance consideration received from customers on certain contracts. For these contracts, revenue is recognized in a manner that is consistent with the satisfaction of the underlying performance obligations. The contract liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each respective reporting period within the contract liabilities line item.

 

Significant changes in the balance of contract liabilities during the period are as follows: 

 

(in thousands)

 

 

 

Balance at December 31, 2022

 

$13,741

 

Revenue recognized during the period that was included in the beginning balance

 

 

(10,081)

Additions, net of revenue recognized during the period

 

 

14,383

 

Balance at March 31, 2023

 

$18,043

 

 

Disaggregation of Revenue 

 

The following table presents the Company’s revenues disaggregated by segment: 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Infrastructure

 

$27,497

 

 

$19,618

 

Telecommunications

 

 

166,052

 

 

 

143,360

 

Total

 

$193,549

 

 

$162,978

 

 

 
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Table of Contents

 

Note 5.   Marketable securities and other investments

 

The Company’s marketable securities are stated at fair value. Any changes in the fair value of the Company’s marketable securities are included within income (loss) from investments, net on the consolidated statement of operations.

 

Realized and unrealized gains and losses are determined on an average cost basis. The marketable securities are investments predominantly in shares of large publicly traded companies which are being invested until such time as the funds are needed for operations.

 

The fair value of these marketable securities is as follows:

 

(in thousands)

 

March 31,

2023

 

 

December 31,

2022

 

Brokerage Account

 

$6,548

 

 

$6,757

 

 

During the three months ended March 31, 2023, the Company recognized net gains of $0.3 million on marketable securities and other investments, which included $0.4 million of realized losses and $0.7 million of unrealized gains on marketable securities. 

 

During the three months ended March 31, 2022, the Company recognized net losses of $0.2 million on marketable securities and other investments, which included $0.2 million of realized gains which were offset by $0.4 million of unrealized losses on marketable securities.

 

Note 6. Goodwill and intangible assets

 

Goodwill and certain intangible assets are not amortized for book purposes. They may, however, be amortized for tax purposes. The Company accounts for its acquired customer relationships, backlogs, non-compete agreements, favorable leases and brand assets as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value of a reporting unit or an asset is less than its respective carrying value, then a charge is recorded to the results of operations.

 

The following table presents goodwill by reportable segment:

 

(in thousands)

 

Infrastructure

 

 

Telecommunications

 

 

Consolidated Total

 

Goodwill, net, as of December 31, 2022

 

$11,900

 

 

$772

 

 

$12,672

 

Additions

 

 

-

 

 

 

-

 

 

 

-

 

Measurement period adjustments

 

 

-

 

 

 

-

 

 

 

-

 

Goodwill, net, as of March 31, 2023

 

$11,900

 

 

$772

 

 

$12,672

 

 

The Company’s goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of October 1 each year. There were no indicators of impairment during the three months ended March 31, 2023.

 

The Company performs review of its intangible assets for impairment when evidence exists that the carrying value of an asset may not be recoverable. There were no events or changes in circumstances which indicated the Company’s intangible assets may not be recoverable. Accordingly, no impairment assessments were conducted on its intangible assets during the three-month periods ended March 31, 2023.

 

 
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Table of Contents

 

The following table presents intangible assets:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

(in thousands)

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Customer relationships

 

$30,849

 

 

$(3,003)

 

$27,846

 

 

$30,849

 

 

$(2,489)

 

$28,360

 

Backlog

 

 

3,322

 

 

 

(1,384)

 

 

1,938

 

 

 

3,322

 

 

 

(1,107)

 

 

2,215

 

Non-compete agreements

 

 

3,729

 

 

 

(1,127)

 

 

2,602

 

 

 

3,729

 

 

 

(895)

 

 

2,834

 

Off-market favorable leases

 

 

955

 

 

 

(955)

 

 

-

 

 

 

955

 

 

 

(955)

 

 

-

 

Brand

 

 

560

 

 

 

(47)

 

 

513

 

 

 

560

 

 

 

(37)

 

 

523

 

Total

 

$39,415

 

 

$(6,516)

 

$32,899

 

 

$39,415

 

 

$(5,483)

 

$33,932

 

 

Note 7. Related party transactions

 

In 2022, the Company entered into a special advisor agreement with KORR Acquisitions Group, Inc., a stockholder of the Company. The agreement includes an upfront payment of $0.5 million and an annual advisory fee of $0.3 million. Mr. Orr, the former Chairman of the Company, has sole voting and dispositive power over the shares held by KORR Acquisitions Group, Inc. and its affiliates.

 

 
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Table of Contents

 

Note 8. Debt

 

Debt was comprised of the following as of the periods indicated:

 

(in thousands)

 

March 31,

2023

 

 

December 31,

2022

 

Line of Credit

 

 

 

 

 

 

ANS Line of Credit

 

$-

 

 

$5,024

 

Total Line of Credit

 

 

-

 

 

 

5,024

 

Notes Payable

 

 

 

 

 

 

 

 

Issued on May 19, 2021

 

 

11,860

 

 

 

11,860

 

Issued on December 17, 2021

 

 

15,926

 

 

 

15,926

 

Total Face Value of Notes Payable

 

 

27,786

 

 

 

27,786

 

Less: Unamortized Discount

 

 

(2,640)

 

 

(3,630)

Net Carrying Value of Notes Payable

 

 

25,146

 

 

 

24,156

 

Total debt before deferred financing costs

 

 

25,146

 

 

 

29,180

 

Current amount of Notes Payable

 

 

25,146

 

 

 

24,156

 

Current amount of Line of Credit

 

 

-

 

 

 

5,024

 

Total current portion of long-term debt

 

 

25,146

 

 

 

29,180

 

Total long-term debt, net of current portion

 

$-

 

 

$-

 

 

Convertible notes payable

 

May 2020 Financing

 

On May 8, 2020, the Company entered into a securities purchase agreement with certain institutional investors (collectively, the “May 2020 Investors”) pursuant to which the Company issued convertible notes in an aggregate principal amount of $3.0 million for an aggregate purchase price of $2.7 million (the “May 2020 Convertible Notes”). In connection with the issuance of the May 2020 Convertible Notes, the Company issued to the May 2020 Investors warrants to purchase an aggregate of 7,600,000 shares of common stock (collectively, the “Warrants”) and 7.5 shares of series G convertible preferred stock (the “Series G Preferred Stock”). The May 2020 Convertible Notes’ maturity date of May 8, 2021, was subsequently extended to May 8, 2023. The May 2020 Convertible Notes accrued interest at a rate of 8% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest was payable in cash on a quarterly basis beginning on December 31, 2020.

 

November 2020 Financing

 

On November 3, 2020, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “November 2020 Investors”) pursuant to which it issued convertible notes in an aggregate principal amount of $3.9 million for an aggregate purchase price of $3.5 million (the “November 2020 Convertible Notes”). In connection with the issuance of the November 2020 Convertible Notes, the Company issued to the November 2020 Investors 903,226 shares of common stock. The November 2020 Convertible Notes were convertible at any time, at the holder’s option, into shares of the Company’s common stock at a conversion price of $0.25 per share. The November 2020 Convertible Notes’ maturity was extended from November 3, 2023, to November 3, 2024. The November 2020 Convertible Notes accrued interest at a rate of 8% per annum.

 

 
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May 2021 Financing

 

On May 19, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “May 2021 Investors”) pursuant to which it issued convertible notes in an aggregate principal amount of $5.6 million for an aggregate purchase price of $5.0 million (collectively, the “May 2021 Convertible Notes” and together with the May 2020 Convertible Notes and the November 2020 Convertible Notes, the “Convertible Notes”). In connection with the issuance of the May 2021 Convertible Notes, the Company issued to the May 2021 Investors warrants to acquire 1,870,000 shares of common stock. The May 2021 Convertible Notes were convertible at any time, at the holder’s option, into shares of the Company’s common stock at a conversion price of $3.00 per share. The May 2021 Convertible Notes were due to mature on May 19, 2024. The May 2021 Convertible Notes accrued interest at a rate of 8% per annum.

 

Conversion of Convertible Notes to Preferred Stock

 

In the second quarter of 2022, the Convertible Notes were exchanged for 1,177,023 shares of Series D preferred stock (“Series D Preferred Stock”). As a result of this exchange, the Company has no Convertible Notes Payable outstanding at March 31, 2023 and December 31, 2022. Refer to Note 12, Stockholders’ equity, for additional information. 

 

April 30, 2020 Sutton Global Note

 

On April 30, 2020, a former CEO converted his payable into a convertible note with a face value of $0.3 million (the “April 2020 Convertible Note”). The April 2020 Convertible Note had a coupon rate of 6% and a maturity date of December 31, 2021. The April 2020 Convertible note was convertible at a rate of $0.0005 per share. Since the April 2020 Convertible Note added a conversion option, it resulted in a debt modification requiring the Company to record a loss on modification of debt in the amount of $0.1 million. On March 25, 2021, Sutton Global Associates converted $0.2 million in principal plus accrued interest into 644,499 shares of the Company common stock. The remaining balance of the April 2020 Convertible note was subsequently sold to an unrelated party and converted into 319,950 shares of the Company common stock.

 

The Company has accounted for all Convertible Notes payable as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the Convertible Notes under ASC 815, which generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the terms and features embedded in the notes required bifurcation and liability classification.

 

The Company analyzed the detachable warrants under ASC 480 and ASC 815. The warrants did not fall under the guidance of ASC 480. After analyzing the warrants under ASC 815, it was determined that the warrants met all of the requirements for equity classification under guidance of ASC 815-40-25-1 through 6.

 

Line of credit

 

Nextridge Inc. (“Nextridge”) and its operating subsidiary Advance Network Services, LLC. (“ANS”) have a revolving $8.0 million line of credit (the “ANS Line of Credit”) available with a bank, collateralized by all the assets of Nextridge and ANS. Interest is payable monthly at the Wall Street Journal prime rate (8.00% and 7.50% at March 31, 2023 and December 31, 2022, respectively). As of March 31, 2023, and December 31, 2022, the Company had outstanding balances of $0 and $5.0 million, respectively, on this ANS Line of Credit.

 

On October 25, 2022, Nextridge and ANS renewed the line of credit increasing the availability from $4.0 million to $8.0 million. Borrowings under the line of credit will bear interest at a floating rate at the Wall Street Journal prime rate with a floor of 5%. Advances under the line of credit are limited to 70% and 50% of Nextridge and ANS’ eligible accounts receivable and work in progress, respectively. At each fiscal year end, Nextridge and ANS must maintain a minimum debt service coverage ratio of 1.2:1 and maximum debt/tangible net worth ratio of 3:1. The outstanding balance on the line of credit is payable upon demand by the bank. In addition to the security interest in the assets of Nextridge and ANS, the line of credit is guaranteed by the Company and Charge Infrastructure Holdings, Inc., the parent of Nextridge and ANS and a subsidiary of the Company. At December 31, 2022, the Company was in compliance with the aforementioned covenants.

 

 
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On November 18, 2022, Nextridge and ANS renewed a $750,000 equipment and vehicle line of credit available with a bank. Interest is payable monthly at the Wall Street Journal prime rate. On December 1, 2023, the line will convert to a term loan with the then five-year Federal Home Loan Bank rate + 2.5% and have a five year term with a five year amortization. There are no financial commitments or covenants on the line of credit. As of March 31, 2023, and December 31, 2022, the Company had an outstanding balance of $0 on this line of credit.

 

B W Electrical Services, LLC. (“BW”) has a revolving $3.0 million line of credit (the “BW Line of Credit”) available with a bank, collateralized by all the assets of BW. Interest is payable monthly at the Wall Street Journal prime rate (8.00% and 7.50% at March 31, 2023 and December 31, 2022, respectively). On May 26, 2022, BW renewed the facility with substantially the same terms and an expiration of August 1, 2023.

 

Advances under the line of credit are limited to 75% of BW’s eligible accounts receivable. At all times during the loan term BW is required to maintain a minimum increase in the net retained earnings of $0.2 million tested annually and maintain a maximum seller funded debt to EBIDA of 2.0x tested semi-annually on a trailing twelve-month basis beginning with the period ended June 30, 2022. In addition to the security interest in the assets of BW, the line of credit is guaranteed by the Company and Charge Infrastructure Holdings, Inc., the parent of BW and a subsidiary of the Company. As of March 31, 2023, and December 31, 2022, the Company had no outstanding balance on the BW Line of Credit. At December 31, 2022, the Company was in compliance with the aforementioned covenants. 

 

Notes payable

 

Prior to the Company’s acquisition, BW was approved for a Paycheck Protection Program loan on February 10, 2021 from the Small Business Administration (“SBA”) in the amount of $2.0 million. In the second quarter of 2022, the loan was forgiven by the SBA. Although the loan was forgiven by the SBA, per the purchase agreement with the sellers of BW in December 2021, if such an event occurred, the Company was obligated to reimburse the SBA loan of $2.0 million to such sellers. As such, the $2.0 million SBA loan was reimbursed to the sellers of BW during the third quarter of 2022. 

 

On May 19, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “May 2021 Investors”) pursuant to which it issued notes payable in an aggregate face value (includes 7.5% premium and 10% original issue discount) of $11.8 million for an aggregate purchase price of $10.0 million (the “May 2021 Notes”). The May 2021 Notes have a coupon of 8% and an 18-month term. The May 2021 Notes’ original maturity date of November 19, 2022, was extended to November 19, 2023.

 

On December 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “December 2021 Investors”) pursuant to which it issued a note payable in an aggregated face value of $15.9 million for an aggregate purchase price of $13.3 million (collectively, the “December 2021 Notes” and together with the May 2021 Notes, the “Notes”). The December 2021 Notes have a coupon of 7.5% and a 23-month term. The December 2021 Notes mature on November 19, 2023.

 

Interest Expense

 

The components of interest expense are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Interest expense

 

$(548)

 

$(735)

Amortization of debt discount

 

 

(990)

 

 

(1,030)

Total net interest expense

 

$(1,538)

 

$(1,765)

 

 
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Note 9. Derivative liabilities

 

The Company does not use financial derivative instruments to manage risk. In June 2022, the Company exchanged the outstanding convertible debt for Series D preferred stock (“Series D Preferred Stock”). Concurrently, the warrants that were granted along with the original convertible debt were amended to provide, at the holders’ choice, the option to exercise for a to-be-issued class of preferred stock, which are convertible into the same number of shares of common stock as would have been issued upon exercise of such warrants under the original terms. This amendment caused the instruments to be treated as a derivative liability beginning on June 30, 2022. The warrants were reclassified from equity to a derivative liability and measured at fair value using a Black Scholes model (Level 2 of U.S. GAAP fair value hierarchy), which included inputs for exercise price, stock price, term to expiration, volatility, and interest rate. The impact was a derivative liability of approximately $40.4 million and a deemed dividend of approximately $32.8 million. This derivative liability is revalued on a recurring basis with changes in the fair value of the derivative recorded through the consolidated statement of operations.

 

In the first quarter of 2023, the Arena Investors (defined below) exercised 7.6 million warrants issued in May 2020 (the “May 2020 Warrants”) into: (i) 4,400,000 shares of common stock; and (ii) 3,200,000 shares of Series E preferred stock (“Series E preferred stock”). In connection with this exercise, the Company revalued the exercised warrants immediately before the exercise and recorded a gain of $0.9 million with an offsetting reduction to the outstanding derivative liability. The Company revalued the remaining warrants as of March 31, 2023, and recorded a gain of $0.5 million, with an offsetting reduction to the outstanding derivative liability. These gains on the remeasurement of the warrants are included in the Change in fair value of derivative liabilities line item on the consolidated statement of operations. Refer to Note 12, Stockholders’ equity, and Note 13, Stock-based compensation, for additional information.

 

The following table summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing reflected on the change in fair value of derivative liabilities line on the consolidated statement of operations:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Derivative liability beginning balance

 

$6,521

 

 

$-

 

Change in fair value of derivative liabilities

 

 

(1,376)

 

 

-

 

Warrant exercise

 

 

(4,806)

 

 

-

 

Derivative liability ending balance

 

$339

 

 

$-

 

 

 
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Note 10. Leases

 

Lease Revenue

 

The Company leases commercial properties under agreements that are classified as operating leases. The Company’s commercial property leases generally include minimum rents and do not include recoveries for property taxes and common area maintenance.

 

The Company’s rental revenues are earned from its operating subsidiary EVDepot, LLC (“EV Depot”) operations and are a component of Infrastructure revenues disclosed in Note 4, Revenue. The following table summarizes the fixed components of rental revenue for the three months ended March 31, 2023, and 2022:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Fixed component

 

$889

 

 

$1,147

 

 

The Company does not have any variable components of rental revenue for the three months ended March 31, 2023 and 2022.

 

Note 11. Reportable segments

 

The Company has two reportable operating segments - Infrastructure, and Telecommunications. The Company also has a Non-operating Corporate segment. All inter-segment revenues are eliminated.

 

Refer to Note 4, Revenue, for additional information on the Company’s revenue by segment. Summary information with respect to the Company’s income (loss) from operations is as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

(As Adjusted)

 

Income (loss) from operations:

 

 

 

 

 

 

Infrastructure

 

$(2,187)

 

$1,637

 

Telecommunications

 

 

(140)

 

 

527

 

Non-operating corporate

 

 

(7,293)

 

 

(11,630)

Total

 

$(9,620)

 

$(9,466)

 

A reconciliation of the Company’s consolidated segment loss from operations to consolidated loss from operations before income taxes and net loss is as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

(As Adjusted)

 

Loss from operations

 

$(9,620)

 

$(9,466)

Income (loss) from investments, net

 

 

296

 

 

 

(170)

Change in fair value of derivative liabilities

 

 

1,376

 

 

 

-

 

Interest expense

 

 

(1,538)

 

 

(1,765)

Other income (expense), net

 

 

391

 

 

 

258

 

Foreign exchange adjustments

 

 

(7)

 

 

(256)

Total other expenses

 

 

518

 

 

 

(1,933)

Loss from operations before income taxes

 

 

(9,102)

 

 

(11,399)

Income tax (expense) benefit

 

 

(110)

 

 

1,373

 

Net loss

 

$(9,212)

 

$(10,026)

 

 
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Summary information with respect to the Company’s operating segments is as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Depreciation and amortization:

 

 

 

 

 

 

Infrastructure

 

$1,190

 

 

$165

 

Telecommunications

 

 

20

 

 

 

44

 

Total

 

$1,210

 

 

$209

 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Capital expenditures:

 

 

 

 

 

 

Infrastructure

 

$90

 

 

$35

 

Telecommunications

 

 

-

 

 

 

-

 

Total

 

$90

 

 

$35

 

 

(in thousands)

 

March 31,

2023

 

 

December 31,

2022

 

Investments:

 

 

 

 

 

 

Infrastructure

 

$1,600

 

 

$1,389

 

Telecommunications

 

 

-

 

 

 

-

 

Non-operating corporate

 

 

5,184

 

 

 

5,604

 

Total

 

$6,784

 

 

$6,993

 

 

(in thousands)

 

March 31,

2023

 

 

December 31,

2022

(As Adjusted)

 

Assets:

 

 

 

 

 

 

Infrastructure

 

$108,804

 

 

$102,248

 

Telecommunications

 

 

58,608

 

 

 

42,046

 

Non-operating corporate

 

 

15,776

 

 

 

24,160

 

Total

 

$183,188

 

 

$168,454

 

 

 
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Note 12. Stockholders’ equity

 

The Company has evaluated each series of preferred stock for proper classification under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. ASC 480 generally requires liability classification for financial instruments that are certain to be redeemed, as they represent obligations to purchase shares of stock or represent obligations to issue a variable number of common shares. Series C preferred stock is classified as a liability within mezzanine equity on the consolidated balance sheet as of March 31, 2023 and December 31, 2022.

 

The Company has 20,000,000 shares of preferred stock authorized with a par value of $0.0001.

 

Permanent Equity

 

Preferred Stock

 

Series D: On June 30, 2022, the Company entered into an exchange agreement with funds affiliated with Arena Investors LP (“Arena Investors”) pursuant to which the Company issued 1,177,023 shares of Series D preferred stock. The Series D preferred stock was issued in exchange for the Convertible Notes. The total principal of the Convertible Notes was $12.5 million. The remaining unamortized discount as of June 30, 2022, of $4.3 million was fully amortized during the period ended June 30, 2022, and included in the amortization of debt discount on the consolidated statement of operations. As of March 31, 2023, and December 31, 2022, there were 1,177,023 shares of Series D preferred stock issued and outstanding.

 

The Series D preferred stock has the following designations:

 

 

·

Convertible at the option of the holder into common stock at $0.4248 per share

 

·

The Series D liquidation preference is equal to $10.6191 per share

 

·

The holders are entitled to receive cumulative quarterly dividends at a fixed annual rate of 2.25% of the liquidation preference, or $0.23893 per share

 

·

No voting rights

 

In addition to the exchange of the Convertible Notes, the related 11.8 million outstanding warrants to purchase common stock were amended to allow the holder to exercise for a to-be-issued class of the Company’s preferred stock, which shall be convertible into the same number of shares of common stock as would have been issued upon exercise of such warrants under the original terms. This amendment caused the instruments to be treated as a derivative liability beginning on June 30, 2022. The transition to derivative accounting created a derivative liability of $40.4 million and a related deemed dividend of $32.8 million. Changes in the fair value of the derivative liability are marked to market through the consolidated statement of operations in the respective period. 

 

Series E: In connection with the Series D preferred stock discussed above, the Company entered into an agreement with the Arena Investors pursuant to which the holder of the 11.8 million outstanding warrants to purchase common stock was allowed to exercise for shares of a to-be-issued class of preferred stock. Pursuant to this provision, on March 14, 2023, the Arena Investors exercised the warrants issued in May 2020 (the “May 2020 Warrants”) into: (i) 4,400,000 shares of common stock; and (ii) 3,200,000 shares of Series E preferred stock (“Series E preferred stock”).

 

The Series E preferred stock has the following designations:

 

 

·

Convertible at the option of the holder at $0.50 per share of common stock

 

·

The liquidation preference is senior in liquidation rights to holders of common stock.

 

·

No dividends

 

·

No voting rights

 

Common Stock

 

On April 20, 2022, the Company entered into a securities purchase agreement with an affiliate of Island Capital Group, LLC pursuant to which the Company issued 1,428,575 shares of Charge’s common stock and three-year warrants to purchase up to 2,000,000 shares of Charge’s common stock at $8.50 per share for an aggregate purchase price of $10.0 million. The purchase price was allocated between common stock and warrants and is reported within common stock and additional paid-in capital on the consolidated balance sheet.

 

 
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Table of Contents

 

On December 8, 2020, the Company entered into a Private Placement Agreement for the purchase of up to an aggregate $2.5 million of Charge’s common stock at $0.25 per share. In connection with this agreement, the Company issued 8,700,000 shares for an aggregate purchase price of $2.2 million. The shares were issued on January 15, 2021.

 

Mezzanine Equity

 

Preferred Stock

 

Series C: On December 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP pursuant to which the Company issued 2,370,370 shares of Series C preferred stock at an aggregate face value of $7.4 million for an aggregate purchase price of $6.7 million. In connection with the issuance of the Series C preferred stock, the Company also issued warrants to purchase 2,370,370 shares of the Company’s common stock. The Company has valued and recorded the beneficial conversion feature of the Series C preferred stock and the warrants resulting in a deemed dividend at the time of issuance.

 

On February 25, 2022, the Company entered into a securities purchase agreement with an affiliate of Island Capital Group LLC pursuant to which it issued 3,856,000 Series C preferred stock at an aggregate face value of $12.1 million for an aggregate purchase price of $10.8 million. The Company has valued and recorded the beneficial conversion feature of the Series C preferred stock resulting in a deemed dividend at the time of issuance. As of March 31, 2023, and December 31, 2022, there were 6,226,370 shares of Series C preferred stock issued and outstanding.

 

The Series C preferred stock has the following designations:

 

 

·

Convertible at the option of the holder at a conversion price of $3.125 per share

 

·

The holders are entitled to receive cumulative dividends at 6% per annum, payable monthly

 

·

In the event of reorganization, this class of preferred will not be affected by any such capital reorganization

 

·

The Series C liquidation preference is equal to the stated value, plus any accrued and unpaid dividends

 

·

Change of control provision whereby the Series C preferred shareholders would receive their stated value before all other shareholders

 

·

No voting rights

 

·

Redemption features:

 

o

If the closing price exceeds 200% of the effective conversion price, the company may force the conversion of preferred stock with 10 days written notice;

 

o

At any time after the original issue date, the Company has the option to redeem some or all the outstanding preferred stock for cash within 10 days written notice; and

 

o

On the third anniversary of the issue date, the holder may request redemption, at the Company’s option of cash or common stock, at the conversion price equal to the four-year redemption amount (a) 100% of the aggregate stated value then outstanding, (b) accrued but unpaid dividend, (c) additional cash consideration in order for the Purchasers to achieve a 20% internal rate of return, and (d) all liquidated damages and other amounts due in respect of the preferred stock.

 

The Series C preferred stock provides that the Company shall redeem the preferred stock for cash or common stock at the Company’s option and, therefore, is not considered mandatorily redeemable. However, due to the change in control provision, the Series C preferred stock has liquidation preference and is deemed a liability and presented within mezzanine equity on the consolidated balance sheet as of March 31, 2023, and December 31, 2022.

 

 
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Warrants 

 

Warrant activity is summarized as follows: 

 

 

 

 

 

Weighted

Average

 

 

Weighted Average Remaining

 

(in thousands except exercise price and contractual life)

 

Number of

Warrants

 

 

Exercise

Price

 

 

Contractual

Life

 

Warrants outstanding at January 1, 2022

 

 

24,085

 

 

$1.74

 

 

3.0 years

 

Issued

 

 

2,000

 

 

 

8.50

 

 

2.8 years

 

Exercised

 

 

(8,183)

 

 

(1.59)

 

 

N/A

 

Expired

 

 

-

 

 

 

-

 

 

 

N/A

 

Warrants outstanding at December 31, 2022

 

 

17,902

 

 

$2.56

 

 

1.8 years

 

Warrants exercisable at December 31, 2022

 

 

17,902

 

 

$2.56

 

 

1.8 years

 

Issued

 

 

-

 

 

 

-

 

 

 

 

 

Exercised

 

 

(7,600)

 

 

0.50

 

 

 

N/A

 

Expired

 

 

-

 

 

 

-

 

 

 

N/A

 

Warrants outstanding at March 31, 2023

 

 

10,302

 

 

$4.08

 

 

 

 

 

Warrants exercisable at March 31, 2023

 

 

10,302

 

 

$4.08

 

 

2.6 years

 

 

Note 13. Stock-based compensation

 

2020 Omnibus Equity Incentive Plan

 

On January 11, 2021, the Company’s Board of Directors and a majority of its stockholders adopted the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), as amended and restated as of May 7, 2021, and on December 23, 2021, with 75.0 million shares available for issuance. Under the 2020 Plan, the Company may grant stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards to individuals who are employees, officers, non-employee directors or consultants of the Company. The vesting periods range from one to four years. As of March 31, 2023, approximately 33.5 million shares remain available for issuance under the 2020 Plan.

 

Non-Qualified Stock Option Agreement

 

On November 1, 2020, Transworld Holdings, Inc. granted 10.5 million in non-qualified stock options to the spouse of a key executive and current member of the Company’s Board of Directors for service in facilitating and completing the acquisition of PTGi International Carrier Services, Inc. (“PTGi”). The stock options have an exercise price of $0.55, vest over a period of three years from the grant date and have a contractual term of 10 years. The grant date fair value of these stock options using the BSM valuation was $0.51 per share. These non-qualified stock options are separate from the 2020 Plan.

 

 
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Table of Contents

 

Stock options

 

Stock option activity is summarized as follows:

 

 

 

 

 

Weighted

Average

 

 

 

 

Weighted Average

Remaining

 

(in thousands except exercise price and contractual term)

 

Shares

 

 

Exercise

Price

 

 

Intrinsic

Value

 

 

Contractual

Term

 

Options outstanding at December 31, 2022

 

 

49,576

 

 

$2.07

 

 

 

-

 

 

 

-

 

Options granted

 

 

1,540

 

 

 

1.41

 

 

 

-

 

 

 

-

 

Options exercised

 

 

(75)

 

 

0.55

 

 

 

-

 

 

 

-

 

Options cancelled

 

 

(426)

 

 

2.60

 

 

 

-

 

 

 

-

 

Options outstanding at March 31, 2023

 

 

50,615

 

 

$2.05

 

 

$11,540

 

 

4.44 years

 

Options exercisable at March 31, 2023

 

 

26,385

 

 

$1.53

 

 

$8,598

 

 

4.20 years

 

Vested and expected to vest at March 31, 2023

 

 

50,615

 

 

$2.05

 

 

$11,540

 

 

4.44 years

 

 

The weighted-average grant date fair value of all options granted during the three months ended March 31, 2023, was $0.82. The total intrinsic value of stock options exercised during the three months ended March 31, 2023, was $0.1 million. There were no stock options exercised during the three months ended March 31, 2022. At March 31, 2023, there was $38.0 million of unrecognized stock-based compensation cost related to unvested stock options that is expected to be recognized over a weighted-average period of 1.7 years.

 

The Company uses the following assumptions in its BSM valuation for stock options granted:

 

 

 

Three Months

Ended

March 31,

 

 

 

2023

 

Weighted risk-free interest rate 1

 

 

3.5%

Weighted-average volatility 2

 

 

60%

Weighted expected dividend yield 3

 

-

%

Weighted expected term (in years) 4

 

 

5.9

 

 

1. Risk-free interest rate - Determined based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options. 

2. Expected volatility - Determined based on a blend of the Company’s historic stock price volatility and the historic volatility of a peer group of publicly traded companies.

3. Expected dividend yield - Determined to be zero as the Company has not and does not currently plan to issue dividends. 

4. Expected term - Determined using the “simplified method” for estimating the expected option life, which is the midpoint of the weighted-average vesting period and contractual term of the option.

 

Restricted stock units

 

Restricted stock unit (“RSU”) activity is summarized as follows:

 

 

 

 

 

Weighted Average

 

(in thousands except exercise price and contractual term)

 

Shares

 

 

Grant Date

Fair Value

 

RSUs outstanding at December 31, 2022

 

 

405

 

 

$2.26

 

RSUs granted

 

 

-

 

 

 

-

 

RSUs released

 

 

-

 

 

 

-

 

RSUs forfeited

 

 

-

 

 

 

-

 

RSUs outstanding at March 31, 2023

 

 

405

 

 

$2.26

 

Weighted average remaining recognition period in years

 

 

3.2

 

 

 

 

 

Unamortized stock-based compensation expense

 

$786

 

 

 

 

 

 

 
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Recognized Non-Cash Stock-Based Compensation Expense 

 

The following non-cash stock-based compensation expense, which is related primarily to options, is included in the stock-based compensation line item in the consolidated statements of operations: 

 

 

 

Three Months Ended

March 31,

 

(in thousands)

 

2023

 

 

2022

(As Adjusted)

 

Stock-based compensation

 

$5,902

 

 

$7,424

 

Income tax benefit (1)

 

 

71

 

 

 

894

 

After-tax stock-based compensation expense

 

$5,831

 

 

$6,530

 

 

(1) Amounts exclude impact from any stock-based compensation expense subject to Section 162(m) of the Internal Revenue Code, which is nondeductible for income tax purposes. 

 

Note 14.  Commitments, contingencies and concentration risk

 

Contingencies

 

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with ASC 450, Contingencies. Litigation and contingency accruals are based on the Company’s assessment, including advice of legal counsel, regarding the expected outcome of litigation or other dispute resolution proceedings. If the Company determines that an unfavorable outcome is probable and can be reasonably assessed, it establishes the necessary accruals. As of March 31, 2023, and December 31, 2022, the Company is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.

 

Other Commitments

 

Indemnities

 

The Company generally indemnifies its customers for the services it provides under its contracts, as well as other specified liabilities, which may subject the Company to indemnity claims, liabilities and related litigation. As of March 31, 2023 and December 31, 2022, the Company was not aware of any material asserted or unasserted claims in connection with these indemnity obligations.

 

Performance and Payment Bonds

 

Many customers, particularly in connection with new construction within Infrastructure, require the Company to post performance and payment bonds issued by a financial institution known as a surety. If the Company fails to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for any expenses or outlays it incurs. To date, the Company is not aware of any losses to their sureties in connection with bonds the sureties have posted on their behalf, and do not expect such losses to be incurred in the foreseeable future. Generally, 10% of bonding needs are held in cash on the balance sheet.

 

 
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Concentration of Credit Risk

 

The Company maintains accounts with financial institutions. All cash in checking accounts is non-interest bearing and is fully insured by the FDIC up to a $250,000 limit. At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company believes it mitigates its risk by depositing its cash and cash equivalents with major financial institutions.

 

Major Customer Concentration

 

There was one customer whose individual accounts receivable represented 10% or more of the Company’s total balance as of March 31, 2023. The Company had three customers whose accounts receivable individually represented 10% or more of the Company’s total balance as of December 31, 2022. In aggregate these customers accounted for approximately 46% of the Company’s total accounts receivable as of December 31, 2022.

 

The Company has one customer whose revenue individually represented 10% or more of the Company’s total revenue and whose revenue accounted for approximately 15% of the Company’s total revenue for the three months ended March 31, 2023. The Company had three customers whose revenue individually represented 10% or more of the Company’s total revenue and in aggregate accounted for approximately 33% of the Company’s total revenue for the three months ended March 31, 2022.

 

Labor Concentration

 

One of our operating subsidiaries within Infrastructure sources direct labor from local unions, which have collective bargaining agreements expiring at various times over the next four years. Although the Company’s past experience has been favorable with respect to resolving conflicting demands with these unions, it is possible that contract negotiations are unsuccessful which could impact the renewal of the collective bargaining agreements and availability of personnel.

 

Note 15.  Income taxes

 

The following table includes the Company’s income (loss) before income tax provision (benefit), income tax provision (benefit) and effective benefit tax rate for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

(As Adjusted)

 

Income (loss) before income taxes 

 

$(9,102)

 

$(11,399)

Income tax benefit (expense)

 

 

(110)

 

 

1,373

 

Effective tax rate

 

(1.2

%)

 

 

12.0%

 

For the three months ended March 31, 2023, and 2022, the Company utilized the discrete effective tax rate method. This discrete method treats the year-to-date period as if it was the annual period and calculates the income tax expense or benefit on a discrete basis. Currently, the Company believes the use of the discrete method represents the best estimate of its annual effective tax rate. The Company’s effective tax rate differed from the statutory rate primarily due to the valuation allowance on deferred tax assets, as well as the Company’s permanent book-tax differences from stock-based compensation.

 

Note 16.  Net income (loss) per share

 

Basic income (loss) per share available to common stockholders is calculated using the weighted average number of common shares outstanding during the applicable period. Diluted net income (loss) per share available to common stockholders is calculated using the weighted average number of common shares outstanding plus the number of dilutive potential common shares outstanding during the applicable period. Dilutive potential common shares consist of the incremental common shares (i) issuable upon the vesting of outstanding restricted stock units and the exercise of outstanding stock options using the treasury stock method, (ii) contingently issuable assuming that the end of the reporting period is the end of the contingency period, and (iii) issuable for non-participating preferred stock using the if-converted method. Our warrants and some of our preferred stock are considered participating securities pursuant to the two-class method. Dilutive potential common shares are excluded from the calculation of diluted net income (loss) per share available to common stockholders if their effect is antidilutive.

 

 
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The following potential common shares were excluded from the calculation of diluted net income (loss) per share available to common stockholders because their effect would have been antidilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Restricted stock units

 

 

405

 

 

 

-

 

Contingently issuable shares

 

 

-

 

 

 

-

 

Warrants

 

 

10,303

 

 

 

14,240

 

Stock options

 

 

50,451

 

 

 

46,555

 

Preferred stock

 

 

20,101

 

 

 

14,406

 

Convertible notes payable

 

 

-

 

 

 

50,497

 

Total

 

 

81,260

 

 

 

125,698

 

 

Note 17. Subsequent Events

 

Events occurring after March 31, 2023, and through the date that these consolidated financial statements were issued, were evaluated to ensure that any subsequent events that met the criteria for recognition have been included. No subsequent events have been identified.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ending December 31, 2022, filed on March 15, 2023. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements.

 

Throughout this Quarterly Report on Form 10-Q, the terms “Charge,” “we,” “our,” or “us” refer to Charge Enterprises, Inc. and its subsidiaries on a consolidated basis, unless stated or the context implies otherwise. The use of the term the “Company,” “partner,” or “partnering” in this report does not mean or imply a formal legal partnership and is not meant in any way to alter the terms of Charge’s relationship with any third parties.

 

Overview

 

Charge Enterprises, Inc. (the “Company” or “Charge”) is an electrical, broadband and electric vehicle (“EV”) charging infrastructure company that provides clients with end-to-end project management services, from advising, designing, engineering, acquiring and installing equipment, to monitoring, servicing, and maintenance. Our vision is to be a leader in enabling the next wave of transportation and connectivity. By building, designing, and operating seamless infrastructure for charging EVs and high-speed broadband, we aim to create a future where transportation is safe, reliable, clean, efficient, and connected.

 

The Company has two operating segments which also represent the Company’s reportable segments:

 

 

·

Infrastructure, which has a primary focus on EV charging (“EVC”), broadband, including cell tower, small cell, and in-building applications, and electrical contracting services.

 

·

Telecommunications, which provides connection of voice calls, Short Message Services (“SMS”), and data to global carriers.

 

Infrastructure

 

Infrastructure’s focus is to implement end-to-end solutions for customers that are custom designed to enhance connectivity, productivity, reduce the cost of operations, and improve the efficiency of commercial operations for our customers and their consumers. Our Infrastructure segment comprises several different offerings: Broadband & Wireless, Electrical Contracting Services, Electric Vehicle Charging and Fleet Services.

 

Telecommunications

 

Telecommunications provides routing of voice, data, and Short Message Services (“SMS”) to Carriers and Mobile Network Operators (“MNO”) globally and operates through our wholly owned subsidiary PTGi International Carrier Services, Inc. (“PTGi”). Telecommunications business has contractual relationships with service providers in over 45 countries primarily within Asia, Europe, the Middle East, Africa, and North and South America. We provide customers with internet-protocol-based and time-division multiplexing (“TDM”) access for the transport of long-distance voice and data minutes.

 

We operate a global telecommunications network consisting of domestic switching and related peripheral equipment, carrier-grade routers, and switches for internet and circuit-based services. To ensure high-quality communications services, our network employs digital switching and fiber optic technologies, incorporates the use of voice-over-internet protocols and SS7/C7 signaling, and is supported by comprehensive network monitoring and technical support services.

 

 
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Comparability to Past Periods

 

During the first quarter of 2023, we elected to change our method for recognizing stock-based compensation expense from the graded vesting attribution method to the straight-line attribution method. This change resulted in the recognition of a cumulative benefit to stock-based compensation expense of approximately $18.1 million ($18.0 million, net of tax). Of this amount, approximately $0.3 million ($0.2 million, net of tax) was attributable to 2020, approximately $8.8 million ($7.8 million, net of tax) was attributable to 2021, and approximately $8.9 million ($10.0 million, net of tax) was attributable to 2022. The Company believes the straight-line attribution method is the predominant method used in its industry, more accurately reflects how awards are earned over its employees’ service periods, and better aligns the Company’s recognition of stock-based compensation expense with its peers. The effects of the change in accounting principle have been retrospectively applied to all periods presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Refer to “Change in Accounting Principle” in Part I, Item 1, Note 2 – “Summary of significant accounting policies” for additional information.

 

Consolidated Results of Operations

 

Comparison of the Reported results for three months ended March 31, 2023, and 2022

 

(in thousands)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2022

 

 

Increase

 

 

% Increase

 

(in thousands)

 

2023

 

 

(As Adjusted)

 

 

(Decrease)

 

 

(Decrease)

 

Revenues

 

$193,549

 

 

$162,978

 

 

$30,571

 

 

 

19%

Cost of sales

 

 

186,828

 

 

 

156,812

 

 

 

30,016

 

 

 

19%

Gross profit

 

 

6,721

 

 

 

6,166

 

 

 

555

 

 

 

9%

Stock-based compensation

 

 

5,902

 

 

 

7,424

 

 

 

(1,522)

 

(21

%)

General and administrative

 

 

3,345

 

 

 

2,742

 

 

 

603

 

 

 

22%

Salaries and related benefits

 

 

5,418

 

 

 

4,193

 

 

 

1,225

 

 

 

29%

Professional fees

 

 

466

 

 

 

1,064

 

 

 

(598)

 

(56

%)

Depreciation and amortization expense

 

 

1,210

 

 

 

209

 

 

 

1,001

 

 

 

479%

Income (loss) from operations

 

 

(9,620)

 

 

(9,466)

 

 

(154)

 

(2

%)

Other income (expenses)

 

 

518

 

 

 

(1,933)

 

 

2,451

 

 

 

127%

Income tax (expense) benefit

 

 

(110)

 

 

1,373

 

 

 

(1,483)

 

(108

%)

Net income (loss)

 

$(9,212)

 

$(10,026)

 

$814

 

 

 

8%

 

Revenues

 

Revenues for the first quarter of 2023 increased $30.6 million to $193.5 million, compared with the first quarter of 2022. The 19% increase in net revenue for the first quarter was driven by an increase in wholesale traffic volumes within Telecommunications as well as increases in the volume of electrical contracting services, wireless network projects, and EV charging installations within Infrastructure.

 

Cost of sales

 

Costs of sales for the first quarter of 2023 increased $30.0 million to $186.8 million, compared with the first quarter of 2022. The increase in cost of sales is directly related to the increase in customer revenue. Overall gross margin percentage decreased versus the prior year driven by the mix of revenue between businesses, the mix of projects in Infrastructure, and a decline in margin on voice calls in Telecommunications. 

 

Stock-based compensation

 

Stock-based compensation decreased $1.5 million to $5.9 million due to options which were granted to newly hired employees in 2021 with a one-year vesting schedule becoming fully vested in 2022. Since these options had a one-year vesting schedule, the options became fully expensed in 2022 and there was a reduction in expense in the current year.

 

 
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General and administrative

 

General and administrative expenses increased $0.6 million in the first quarter of 2023 to $3.3 million when compared to the first quarter of 2022. The increase was attributable to higher consulting spend, higher insurance expense, and higher recruiting expense, partially offset by lower marketing spend in the Corporate segment.

 

Salaries and benefits

 

Salaries and benefits for the first quarter of 2023 increased $1.2 million to $5.4 million when compared with the first quarter of 2022. The increase was principally attributable to investments in personnel in the Infrastructure and Corporate segments to support our company’s growth.

 

Professional fees

 

Professional fees decreased $0.6 million to $0.5 million in the first quarter of 2023. The decrease is primarily related to higher legal and accounting fees in the prior year related to acquisitions and our uplist to Nasdaq.

 

Depreciation and amortization expense

 

Depreciation and amortization expense increased $1.0 million to $1.2 million. The increase was driven by amortization of intangible assets associated with the acquisitions of ANS, BW, and EV Depot.

 

Other operating income (expense), net

 

Other operating income (expense), net increased by $2.5 million from an expense of $1.9 million in 2022 to an income of $0.5 million in 2023. The income in 2023 was driven primarily by a gain in fair value of derivative liabilities of $1.4 million, an investment gain of $0.3 million, and a gain on the sale of intellectual property of $0.3 million, offset by debt amortization costs of $1.0 million and interest expense of $0.5 million. The expense in 2022 was driven primarily by debt amortization costs of $1.0 million, interest expense of $0.7 million and a foreign exchange adjustment of $0.3 million.

 

Income tax benefit

 

The Company incurred income tax expense in the three months ended March 31, 2023, compared to an income tax benefit for the three months ended March 31, 2022, primarily due to an increase of the valuation allowance on deferred tax assets in the current period. The Company placed a full valuation allowance on its deferred tax assets in the fourth quarter of 2022.

 

 
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Table of Contents

 

Segment Results of Operations

 

Infrastructure

 

Comparison of the reported results for three months ended March 31, 2023, and 2022

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2022

 

 

Increase

 

 

% Increase

 

(in thousands)

 

2023

 

 

(As Adjusted)

 

 

(Decrease)

 

 

(Decrease)

 

Revenues

 

$27,497

 

 

$19,618

 

 

$7,879

 

 

 

40%

Cost of sales

 

 

21,473

 

 

 

14,880

 

 

 

6,593

 

 

 

44%

Gross profit

 

 

6,024

 

 

 

4,738

 

 

 

1,286

 

 

 

27%

Stock-based compensation

 

 

2,410

 

 

 

-

 

 

 

2,410

 

 

 

100%

General and administrative

 

 

1,356

 

 

 

888

 

 

 

468

 

 

 

53%

Salaries and related benefits

 

 

3,222

 

 

 

1,987

 

 

 

1,235

 

 

 

62%

Professional fees

 

 

33

 

 

 

61

 

 

 

(28)

 

(46

%)

Depreciation and amortization expense

 

 

1,190

 

 

 

165

 

 

 

1,025

 

 

 

621%

Income (loss) from operations

 

 

(2,187)

 

 

1,637

 

 

 

(3,824)

 

(234

%)

Other income (expenses)

 

 

146

 

 

 

(449)

 

 

595

 

 

 

133%

Income tax (expense) benefit

 

 

(110)

 

 

90

 

 

 

(200)

 

(222

%)

Net income (loss)

 

$(2,151)

 

$1,278

 

 

$(3,429)

 

(268

%)

 

Revenues

 

Revenue increased $7.9 million to $27.5 million. The increase was driven by growth within BW related to electrical contracting services, growth within ANS related to wireless network projects, and higher revenues within our new EV charging infrastructure business.

 

Cost of sales

 

Cost of sales increased $6.6 million to $21.5 million driven by the increase in revenues. Gross margin percentage decreased driven by the mix of revenue between businesses and the mix of projects.

 

Stock-based compensation

 

Stock-based compensation increased $2.4 million due to the Company’s election to allocate stock-based compensation expense out to its segments, beginning in 2023.

 

General and administrative

 

General and administrative expense increased $0.5 million to $1.4 million driven primarily by higher insurance, recruiting, and marketing expense to support the growth of the business.

 

Salaries and related benefits

 

Salaries and benefits increased $1.2 million to $3.2 million driven by higher headcount across all Infrastructure businesses to support growth.

 

Professional fees

 

Professional fees were consistent with the first quarter of 2022.

 

Depreciation and amortization expense

 

Depreciation and amortization expense increased $1.0 million to $1.2 million. The increase was driven by amortization of intangible assets associated with the acquisitions of ANS, BW, and EV Depot.

 

Other operating income (expense)

 

Other operating income (expense), net increased by $0.6 million from an expense of $0.4 million in 2022 to an income of $0.2 million in 2023. The change was driven primarily by an investment gain of $0.2 million in 2023 compared to an investment loss of $0.5 million in 2022.

 

 
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Table of Contents

 

Income tax benefit

 

The Company generated income tax expense in the three months ended March 31, 2023 compared to an income tax benefit for the three months ended March 31, 2022, primarily due to an increase of the valuation allowance on deferred tax assets in the current period. The Company placed a full valuation allowance on its deferred tax assets in the fourth quarter of 2022.

 

Telecommunications

 

Comparison of the reported results for three months ended March 31, 2023, and 2022

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2022

 

 

Increase

 

 

% Increase

 

(in thousands)

 

2023

 

 

(As Adjusted)

 

 

(Decrease)

 

 

(Decrease)

 

Revenues

 

$166,052

 

 

$143,360

 

 

$22,692

 

 

 

16%

Cost of sales

 

 

165,355

 

 

 

141,932

 

 

 

23,423

 

 

 

17%

Gross profit

 

 

697

 

 

 

1,428

 

 

 

(731)

 

(51

%)

Stock-based compensation

 

 

120

 

 

 

-

 

 

 

120

 

 

 

100%

General and administrative

 

 

495

 

 

 

513

 

 

 

(18)

 

(4

%)

Salaries and related benefits

 

 

182

 

 

 

319

 

 

 

(137)

 

(43

%)

Professional fees

 

 

20

 

 

 

25

 

 

 

(5)

 

(20

%)

Depreciation and amortization expense

 

 

20

 

 

 

44

 

 

 

(24)

 

(55

%)

Income (loss) from operations

 

 

(140)

 

 

527

 

 

 

(667)

 

(127

%)

Other income (expenses)

 

 

281

 

 

 

(128)

 

 

409

 

 

 

320%

Income tax (expense) benefit

 

 

-

 

 

 

185

 

 

 

(185)

 

(100

%)

Net income (loss)

 

$141

 

 

$584

 

 

$(443)

 

(76

%)

 

Revenues

 

Revenue increased $22.7 million to $166.1 million due to an overall increase in wholesale traffic volumes compared to 2022 driven by higher voice demand. The rapid development of new technologies, services, and products has eliminated many of the traditional distinctions among wireless, cable, internet, local, and long-distance communication services. While revenues increased in 2023 compared to 2022, the Company continues to expect downward pressure on revenues over time due to the pace of technology development, emergence of new products, and intense competition.

 

Cost of sales

 

Cost of sales increased $23.4 million to $165.4 million driven by the increase in customer revenue. Gross margin percentage in this business decreased year over year due to customer mix.

 

Stock-based compensation

 

Stock-based compensation increased $0.1 million due to the Company’s election to allocate stock-based compensation expense out to its segments, beginning in 2023.

 

 
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Table of Contents

 

General and administrative

 

General and administrative expense was consistent with the first quarter of 2022 as investment in the SMS business offset other cost saving actions.

 

Salaries and related benefits

 

Salaries and benefits decreased $0.1 million to $0.2 million driven by higher allocation of expense of employees supporting the Corporate segment.

 

Professional fees

 

Professional fees were consistent with the first quarter of 2022.

 

Depreciation and amortization expense

 

Depreciation and amortization expense was consistent with the first quarter of 2022.

 

Other operating income (expense)

 

Other operating income (expense), net increased by $0.4 million from an expense of $0.1 million in 2022 to an income of $0.3 million in 2023. The income in 2023 was driven by a gain on the sale of intellectual property of $0.3 million. The expense in 2022 was driven by a foreign exchange adjustment of $0.3 million, offset by a gain on the sale of intellectual property of $0.1 million.

 

Income tax benefit

 

The Company generated income tax expense in the three months ended March 31, 2023 compared to an income tax benefit for the three months ended March 31, 2022, primarily due to an increase of the valuation allowance on deferred tax assets in the current period. The Company placed a full valuation allowance on its deferred tax assets in the fourth quarter of 2022.

 

 
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Table of Contents

 

Non-operating Corporate Segment

 

Comparison of the reported results for three months ended March 31, 2023, and 2022

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2022

 

 

Increase

 

 

% Increase

 

(in thousands)

 

2023

 

 

(As Adjusted)

 

 

(Decrease)

 

 

(Decrease)

 

Revenues

 

$-

 

 

$-

 

 

$-

 

 

 

-

 

Cost of sales

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Gross profit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

3,372

 

 

 

7,424

 

 

 

(4,052)

 

(55

%)

General and administrative

 

 

1,494

 

 

 

1,341

 

 

 

153

 

 

 

11%

Salaries and related benefits

 

 

2,014

 

 

 

1,887

 

 

 

127

 

 

 

7%

Professional fees

 

 

413

 

 

 

978

 

 

 

(565)

 

(58

%)

Income (loss) from operations

 

 

(7,293)

 

 

(11,630)

 

 

4,337

 

 

 

37%

Other income (expenses)

 

 

91

 

 

 

(1,356)

 

 

1,447

 

 

 

107%

Income tax (expense) benefit

 

 

-

 

 

 

1,098

 

 

 

(1,098)

 

(100

%)

Net income (loss)

 

$(7,202)

 

$(11,888)

 

$4,686

 

 

 

39%

 

Stock-based compensation

 

Stock-based compensation decreased $4.1 million to $3.4 million. The decrease was due to the Company’s election to allocate stock-based compensation expenses to its segments, beginning in 2023. A higher allocation of stock-based compensation to the Company’s Infrastructure and Telecommunications segments resulted in a lower allocation to the Company’s Non-operating corporate segment.

 

General and administrative

 

General and administrative expenses increased $0.2 million to $1.5 million driven by higher consulting and insurance expenses, offset by lower marketing spend.

 

Salaries and related benefits

 

Salaries and benefits increased $0.1 million to $2.0 million driven by investments in personnel to support the Company’s growth.

 

Professional fees

 

Professional fees decreased $0.6 million to $0.4 million. The decrease is primarily related to higher legal and accounting fees in the prior year related to acquisitions and our uplist to Nasdaq.

 

Other operating income (expense)

 

Other operating income (expense), net increased by approximately $1.4 million from an expense of $1.4 million in 2022 to an income of $0.1 million in 2023. The income in 2023 was driven primarily by a gain in fair value of derivative liabilities of $1.4 million, an investment gain of $0.1 million, and a gain on the sale of intellectual property of $0.3 million, offset by debt amortization costs of $1.0 million and interest expense of $0.5 million. The expense in 2022 was driven primarily by debt amortization costs of $1.0 million and interest expense of $0.7 million, offset by an investment gain of $0.4 million.

 

 
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Liquidity and Capital Resources

 

Our primary sources of liquidity are operating cash flows and private placement of equity and debt. In order to finance acquisitions, throughout 2020 and 2021, we issued preferred shares, convertible and non-convertible promissory notes. During 2022, all convertible notes, in the amount of $12.5 million, were either exchanged for Series D preferred stock or sold to an unrelated third party and converted to common stock. As a result, we no longer have any convertible notes payable outstanding at March 31, 2023 and December 31, 2022. Outstanding non-convertible notes in the amount of $27.8 million mature in November, 2023.

 

We assess our liquidity in terms of our ability to generate cash to fund our short-term and long-term cash requirements. We believe that our business will continue to generate sufficient cash flows from operating activities, and we believe that these cash flows, together with our existing cash and cash equivalents, our ability to draw on current credit facilities and refinance or replace existing non-convertible notes, will be sufficient for us to meet our current liquidity and capital requirements for operations over the next 12 months. In the event that our plans change, or our cash requirements are greater than we anticipate, we may need to access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.

 

Funding

 

On February 25, 2022 we entered into a securities purchase agreement with Island Capital Group Charge Me LLC (the “February 2022 Investors”) pursuant to which we issued Series C preferred shares in an aggregate face value of $12.1 million and aggregate purchase price of $10.8 million (“Series C preferred stock”). We valued and recorded the beneficial conversion feature of the Series preferred stock resulting in a deemed dividend at the time of issuance. At March 31, 2023, and December 31, 2022, we have 6,226,370 shares of Series C preferred stock issued and outstanding.

 

On December 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “December 2021 Investors”) pursuant to which we issued a note payable in an aggregate face value of $15.9 million for an aggregate purchase price of $13.3 million (the “December 17, 2021 Notes”). The December 17, 2021 Notes have a coupon of 7.5% per annum and a maturity date of November 19, 2023. On December 17, 2021, we issued 2,370,370 shares of Series C Preferred (“Series C Preferred Stock”) to Arena Investors LP as part of the securities purchase agreement at an aggregate purchase price of $6.7 million. In connection with the issuance of the Series C Preferred Stock, we also issued warrants to purchase 2,370,370 shares of our common stock at a price of $4.00 per share.

 

On May 19, 2021, we entered a securities purchase agreement with funds affiliated with Arena Investors LP (the “May 2021 Investors”) pursuant to which we issued: (i) convertible notes in an aggregate principal amount of $5.6 million for an aggregate purchase price of $5.0 million that are convertible at any time, at the holder’s option, into shares of our common stock at a conversion price of $4.00 per share and mature on May 19, 2024 (the “May 19, 2021 Convertible Notes”); and (ii) non-convertible notes payable in an aggregate face value of $11.9 million for an aggregate purchase price of $10.0 million (the “May 19, 2021 Notes”). The May 19, 2021 Notes includes a 7.5% premium and 10% original issue discount, a coupon of 8.0% per annum and were originally set to mature on November 19, 2022. The maturity date was subsequently extended to November 19, 2023. In connection with this extension, we issued to the May 2021 Investors warrants to acquire 1,870,000 shares of common stock at a price of $4.00 per share.

 

On November 3, 2020, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “November 2020 Investors”) pursuant to which we issued convertible notes in an aggregate principal amount of $3.9 million for an aggregate purchase price of $3.5 million (the “November 2020 Convertible Notes). In connection with the issuance of the November 2020 Convertible Notes, we issued to the November 2020 Investors 903,226 shares of common stock. The November 2020 Convertible Notes were convertible at any time, at the holder’s option, into shares of our common stock at a conversion price of $0.25 per share.

 

 
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On May 8, 2020, we entered into a securities purchase agreement with certain institutional investors (collectively, the “May 2020 Investors”) pursuant to which we issued convertible notes in an aggregate principal amount of $3.0 million for an aggregate purchase price of $2.7 million (the “May 2020 Convertible Notes”). In connection with the issuance of the May 2020 Convertible Notes, we issued to the May 2020 Investors warrants to purchase an aggregate of 7,600,000 shares of common stock (collectively, the “Warrants”) and 7.5 shares of series G convertible preferred stock (the “Series G preferred stock”). The May 2020 Convertible Notes’ maturity date of May 8, 2021 was extended to May 8, 2023, unless earlier converted. The May 2020 Convertible Notes accrue interest at a rate of 8% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest was payable in cash on a quarterly basis beginning on December 31, 2020. The May 2020 Convertible Notes were convertible at any time, at the holder’s option.

 

During the year ended December 31, 2022, we entered into a non-cash exchange agreement with funds affiliated with the November 2020 Investors and the May 2020 Investors pursuant to which we issued 1,177,023 shares of Series D preferred stock (“Series D preferred stock”) in exchange for the November 2020 Convertible Notes, the May 2020 Convertible Notes, and the May 2021 Convertible Notes, totaling $12.5 million. At March 31, 2023, and December 31, 2022, we no longer have any convertible notes outstanding.

 

In connection with the Series D preferred stock, we entered into an agreement with the Arena Investors pursuant to which the holder of the 11.8 million outstanding warrants to purchase common stock was allowed to exercise for shares of a to-be-issued class of preferred stock. Pursuant to this provision on March 14, 2023, the Arena Investors exercised the warrants issued May 2020 (the “May 2020 Warrants”) into: (i) 4.4 million shares of common stock; and (ii) 3.2 million shares of Series E preferred stock (“Series E preferred stock”). The proceeds from the issuance of the Series E preferred stock was $1.6 million and the proceeds from the exercise of warrants was $2.2 million.

 

Our subsidiary ANS has an $8.0 million line of credit (the “ANS Line of Credit”), which we and our subsidiary Charge Infrastructure Holdings, Inc. guarantee. Interest on the ANS Line of Credit is payable monthly at the Wall Street Journal prime rate. During the three months ended March 31, 2023, we borrowed $4.7 million under the ANS Line of Credit and made payments against the ANS Line of Credit of $9.7 million. As a result of this activity, we have no amounts outstanding under the ANS Line of Credit at March 31, 2023.

 

On November 18, 2022, our subsidiaries Nextridge and ANS renewed a $750,000 equipment and vehicle line of credit available with a bank. Interest is payable monthly at the Wall Street Journal prime rate. On December 1, 2023, the line will convert to a term loan with the then five-year Federal Home Loan Bank rate + 2.5% and have a five year term with a five year amortization. There are no financial commitments or covenants on the line of credit. As of March 31, 2023, and December 31, 2022, we have no amounts outstanding under this line of credit.

 

Our subsidiary BW has a $3.0 million line of credit (the “BW Line of Credit”), which we and our subsidiary Charge Infrastructure Holdings, Inc. guarantee. Interest on the BW Line of Credit is payable monthly at the Wall Street Journal prime rate. During the three months ended March 31, 2023, we did not borrow under the BW Line of Credit. We have no amounts outstanding under the BW Line of Credit at March 31, 2023.

 

Liquidity

 

As of March 31, 2023, we had $27.8 million aggregate principal amount outstanding under the May 19, 2021 Notes and the December 17, 2021 Notes. As of March 31, 2023, we have no amounts outstanding under the ANS Line of Credit or the BW Line of Credit. As of March 31, 2023, total liquidity was $54.0 million, which was comprised of $8.0 million available under the ANS Line of Credit, $3.0 million available under the BW Line of Credit, and $36.5 million in cash and cash equivalents and $6.5 million of marketable securities. We may also use our capital resources to repurchase shares of our common stock, to pay dividends to our stockholders, and to make acquisitions.

 

Cash Requirements

 

As discussed above, as of March 31, 2023, we have no amounts outstanding under the ANS Line of Credit or BW Line of Credit and $27.8 million aggregate principal amount outstanding under the May 19, 2021 Notes and the December 17, 2021 Notes. This aggregate balance of $25.2 million, net of $2.6 million unamortized debt discount is reflected as a current liability as the entire balance will become due within the next 12 months. In addition, we also have outstanding commitments under our operating and capital leases in the amount of $3.6 million. In connection with our issued and outstanding Series C preferred stock and Series D preferred stock, we anticipate making preferred dividend payments of approximately $1.5 million in the next 12 months.

 

 
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Cash Flows

 

The following table summarizes our cash flow activity, as reported within the consolidated statements of cash flows, followed by a discussion of the major drivers impacting operating, investing, and financing cash flows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

Total cash provided by (used in):

 

 

 

 

 

 

Operating activities

 

$10,916

 

 

$14,716

 

Investing activities

 

 

377

 

 

 

(15,247)

Financing activities

 

 

(1,565)

 

 

8,659

 

Effect of foreign currency exchange rates on cash and cash equivalents

 

 

(72)

 

 

15

 

Net increase in cash and cash equivalents

 

$9,656

 

 

$8,143

 

 

Cash Flows from Operating Activities

 

Cash flows provided by operating activities was $10.9 million and $14.7 million for the three months ended March 31, 2023, and 2022, respectively. The decrease in cash provided by operating activities was primarily due to the decrease of cash provided by net working capital in 2023 of $14.1 million, compared with $17.2 million cash provided by net working capital in 2022, coupled with a decrease in net income adjusted for non-cash items of $0.7 million. 

 

Cash Flows from Investing Activities

 

Cash flows provided by investment activities was $0.4 million for the three months ended March 31, 2023. Cash flows used in investing activities was $15.2 million for the three months ended March 31, 2022. The increase in cash flows provided by investment activities in 2023 was primarily driven by an increase in net proceeds from the purchase and sale of marketable securities of approximately $14.7 million, which was partially offset by a reduction in cash outflows for acquisitions of approximately $1.2 million.

 

Cash Flows from Financing Activities

 

Cash flows used in financing activities was $1.6 million for the three months ended March 31, 2023. Cash flows provided by financing activities was $8.7 million for the three months ended March 31, 2022. The cash flows provided by financing activities decreased primarily due to: (i) a net reduction in proceeds from the issuance of preferred stock of $9.2 million; and (ii) an increase in payments on revolving lines of credit of $4.6 million. These reductions in cash flows provided by financing activities were partially offset by: (i) an increase in proceeds from the exercise of warrants of $2.2 million; and (ii) an increase in proceeds from borrowings under revolving lines of credit of $1.5 million.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2023, the Company did not have any off-balance sheet arrangements.

 

 
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Critical Accounting Estimates

 

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. “Note 2, Summary of significant accounting policies” to the Consolidated Financial Statements in our 2022 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Form 10-K, are stock-based compensation, revenue recognition, leases, goodwill, and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements, and actual results could differ materially from the amounts reported.

 

Recent Accounting Pronouncements

 

See Part I, Item 1, “Note 2, Summary of significant accounting policies” for a detailed description of Recent Accounting Pronouncements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk from fluctuations in interest rates and foreign currency exchange rates.

 

Interest Rate Risk

 

The Federal Reserve Board has been increasing interest rates, and it is anticipated that rate increases will continue throughout 2023. We are exposed to market risk from changes in interest rates on our variable-rate indebtedness (the ANS Line of Credit and BW Line of Credit). As of March 31, 2023, and December 31, 2022, we had $0.0 million and $5.0 million outstanding under the ANS Line of Credit, respectively, which bears interest at the Wall Street Journal prime rate (“Prime Rate”). As of March 31, 2023, and December 31, 2022, we did not have any outstanding balances on our BW Line of Credit, which bears interest at the Prime Rate.

 

As of March 31, 2023, if our borrowing rates were to change by 1%: (i) interest expense on our ANS Line of Credit would increase or decrease, as applicable, by $0.1 million on an annual basis, assuming our entire $8.0 million balance under the ANS Line of Credit was outstanding; and (ii) interest expense on our BW Line of Credit would increase or decrease, as applicable, by $0.1 million on an annual basis, assuming our entire $3.0 million balance under the BW Line of Credit was outstanding.

 

As of March 31, 2023, and December 31, 2022, we also had $27.8 million aggregate principal amount of fixed-rate senior notes payable (the “Notes Payable”) outstanding, which bear interest at a weighted average interest rate of 7.7%. Since our Notes Payable bear interest at fixed rates and are carried at amortized cost, fluctuations in interest rates do not have any impact on our consolidated financial statements. However, the fair value of the Notes Payable will fluctuate with movements in market interest rates, increasing in periods of declining interest rates and declining in periods of increasing interest rates. The Notes Payable are not subject to interest rate risk, but we may be subject to changes in interest rates if and when we refinance this debt at maturity or otherwise.

 

At this time, we have not entered into, but in the future we may enter into, derivatives or other financial instruments in an attempt to hedge our interest rate risk.

 

Foreign Currency Risk

 

In our Telecommunications business, we perform services in foreign countries, that have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, have negatively affected, and may continue to negatively affect, our revenue and other operating results as expressed in U.S. dollars.

 

We enter into transactions that are not denominated in their functional currency. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related to revaluing monetary asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. At this time, we have not entered into, but in the future we may enter into, derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the effect hedging activities would have on our results of operations. Foreign currency exchange net losses of $0.0 million, and $0.3 million were recognized during the three months ended March 31, 2023, and 2022, respectively. If the Euro had weakened or strengthened by 10% compared to the U.S. dollar, our foreign currency exchange losses for the three months ended March 31, 2023, would have an immaterial impact on the consolidated financial statements. Revenue from foreign currency represents approximately 2% of total revenue.

 

 
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Translation gains or losses, which are recorded in other comprehensive income or loss, result from translation of the assets and liabilities of our foreign subsidiaries into US dollars. Foreign currency exchange net losses of $0.0 million were recognized during the three months ended March 31, 2023, and 2022. If the Euro had weakened or strengthened by 10% compared to the U.S. dollar, our foreign currency exchange losses for the three months ended March 31, 2023 would have increased or decreased by approximately $0.0 million.

 

This sensitivity analysis has inherent limitations. While our largest exposure is to the Euro, the analysis disregards the possibility that rates of multiple foreign currencies will not always move in the same direction relative to the value of the U.S. dollar.

 

Item 4. Controls And Procedures Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.

 

Changes in Internal Control Over Financial Reporting

 

During the first quarter of 2023, we implemented a financial accounting and reporting system. We assessed any potential impacts on our internal controls and processes related both to the implementation of the system and the activities performed using the new system. As a result, we have implemented changes to our current processes and the respective control activities to align with the upgraded system functionality. We believe the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period of change, and we will continue to evaluate the operating effectiveness of related key controls during subsequent periods.

 

Other than the system implementation noted above, there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(e) and 15d-15(e) of the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Controls

 

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

 

 
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Part II

OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may be involved in litigation incidental to the conduct of our business. We are currently not a party to any legal proceedings that we believe would have a material effect on our business, financial position, results of operations or cash flows.

 

Item 1A. Risk Factors

 

There have been no material changes to the risk factors associated with our business previously described in our Annual Report on Form 10-K filed with the SEC on March 15, 2023.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Market Information

 

Our common stock has been listed on the Nasdaq Global Market since April 12, 2022. Our common stock was quoted on the Pink Open Market from January 27, 2021, to April 11, 2022. Our common stock is currently quoted under the trading symbol “CRGE”.

 

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings

 

Except as set forth below, we did not sell any of our equity securities during the three months ended March 31, 2023, that were not registered under the Securities Act and were not previously reported on a Current Report on Form 8-K filed by us.

 

During the three months ended March 31, 2023, we issued 3,200,000 shares of Series E preferred stock which generated cash proceeds of $1.6 million. 

 

We deemed the issuances of the securities described above to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, relative to transactions by an Issuer not involving a public offering.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

 
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Item 6. Exhibits

 

Exhibit Number

 

Description

3.1 #

 

Certificate of Incorporation of GoIP Global, Inc., dated October 1, 2020 (Incorporated by reference to Exhibit 3.1 to our Form S-1 as filed on February 12, 2021)

3.2 #

 

Certificate of Designations of the Series A Preferred Stock, dated October 6, 2020 (Incorporated by reference to Exhibit 3.2 to our Form S-1 as filed on February 12, 2021)

3.3 #

 

Certificate of Amendment to the Certificate of Incorporation, dated December 11, 2020 (Incorporated by reference to Exhibit 3.3 to our Form S-1 as filed on February 12, 2021)

3.4 #

 

Certificate of Amendment to the Certificate of Incorporation, dated January 26, 2021 (Incorporated by reference to Exhibit 3.4 to our Form S-1 as filed on February 12, 2021)

3.5 #

 

Amendment to Certificate of Designations of the Series A Preferred Stock, dated March 29, 2021 (Incorporated by reference to Exhibit 3.5 to our Form S-1/A as filed on June 11, 2021)

3.6 #

 

Certificate of Designations of the Series B Preferred Stock, dated May 20, 2021 (Incorporated by reference to Exhibit 3.7 to our Form S-1/A as filed on June 11, 2021)

3.7 #

 

Certificate of Designations of the Series C Preferred Stock, dated December 17, 2021 (Incorporated by reference to Exhibit 3.8 to our Form 8-K as filed on December 23, 2021)

3.8 #

 

Certificate of Amendment of the Certificate of Incorporation, dated December 29, 2021 (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on January 4, 2022)

3.9 #

 

Amended and Restated Certificate of Designations of the Series C Preferred Stock, filed on February 25, 2022 (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on March 3, 2022)

3.10 #

 

Certificate of Amendment to the Certificate of Incorporation, dated September 27, 2022. (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on September 28, 2022)

3.11 #

 

Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock filed on June 30, 2022 (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on July 7, 2022).

3.12 #

 

Certificate of Amendment to the Certificate of Incorporation, dated September 27, 2022. (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on September 28, 2022)

3.13 #

 

Amended and Restated Bylaws, effective January 26, 2023. (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on January 27, 2023)

3.14 #

 

Certificate of Designation of Preferences, Rights and Limitations of Series E Preferred Stock filed on March 27, 2023 (Incorporated by reference to Exhibit 3.1 to our Form 8-K as filed on March 31, 2023)

10.01 #

 

Amended and Restated Registration Rights Agreement, dated March 27, 2023 by and between the Company and the Arena Investors (Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed on March 31, 2023)

10.02 #

 

Form of Indemnification Agreement by and between Charge Enterprises, Inc. and its individual directors and certain officers. (Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed on February 10, 2023)

18.1 **

 

Preferability Letter of Independent Registered Public Accounting Firm (Ernst & Young LLP)

31.1 **

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d- 14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 **

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 ***

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 ***

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 
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101.INS **

 

Inline XBRL Instance Document.

101.SCH **

 

Inline XBRL Taxonomy Extension Schema.

101.CAL **

 

Inline XBRL Taxonomy Extension Calculation Linkbase.

101.LAB **

 

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE **

 

Inline XBRL Taxonomy Presentation Linkbase.

101.DEF **

 

Inline XBRL Taxonomy Definition Linkbase Document.

104 **

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

 

* Schedules omitted pursuant to relevant provisions of item 601 of Regulation SK. The registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request, provided, however, that the registrant may request confidential treatment pursuant to Rule 24b2 of the Exchange Act, as amended, for any schedule or exhibit so furnished.

 

** Filed herewith.

 

*** Furnished herewith.

 

# Incorporated by reference

 

 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: May 10, 2023CHARGE ENTERPRISES, INC.
    
By:/s/ Andrew Fox

 

Name

Andrew Fox 
 Title:Chief Executive Officer

(Principal Executive Officer)

 
    

 

By:

/s/ Leah Schweller

 

 

Name

Leah Schweller

 

 

Title:

Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

 

 

 
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